How Much Should I Contribute to My 401(k) if No Match?

Before the economic downturn that occurred in 2008, it was a no-brainer to invest in your company’s 401k program because your employer would typically match your contribution, possibly dollar for dollar or 50 cents on the dollar for the first 3 percent to 6 percent. As a way to stay competitive or to stay in business, matching your 401k contributions is one of the first programs employers cut. Contributing to your 401k might be your best bet, but it doesn’t hurt to explore your other options.

Traditional IRA

Contributing to an IRA is similar to contributing to a 401k because it is funded with pre-tax dollars, but you have more investment choices with an IRA, according to Charles Schwab. Contributing to an IRA depends on eligibility. For example, as of the time of publication, for a single filer whose adjusted gross income is $56,000 or less, the contribution is fully deductible. This is a good way to go if you expect to be in the same or lower tax bracket in retirement. If you want to save more than the limit, which is $5,000 if you are under 50 and $6,000 if you are over 50, then put the extra in your 401k.

Roth IRA

If you are eligible, you might want to invest in a Roth IRA instead of a 401k, especially if you think you will be in a higher tax bracket when you retire because qualified withdrawals are tax-free. In addition, the Roth does not require you to take distributions at age 70 1/2 as the 401k does. The Roth is funded with after-tax dollars. As of the time of publication, if you are a single filer and have a modified adjusted gross income (MAGI) of more than $122,000, or if you are married and filing jointly and have a MAGI of more than $179,000, you cannot contribute. If you are a single filer with a MAGI of less than $107,000, or if you are married and file jointly and have a MAGI of less than $169,000, you can contribute $5,000 if you are under 50 and $6,000 if you are older than 50. If you still have money left to save after you put it in the Roth, contribute to your 401k.

401k Vs. Taxable Investment

Though your employer isn’t matching your 401k contributions, the 401k is still a good option because you don’t pay taxes on the money you contribute or on the money you earn. You can quit the 401k and instead put your money in a taxable account. You need to figure whether you come out ahead or not. With a taxable account, you have to pay capital gains tax, tax on sales and tax on dividends. If you want to invest in taxable accounts, hold onto your stocks or mutual funds. High turnover funds should be kept in your 401k, according to Kimberly Lankford of "Kiplinger."

Crunch the Numbers

How much to contribute to your 401k without an employer match depends on the quality of your 401k compared to your other options. Tim Middleton of MSN Money says that large companies and the federal government typically offer good 401k plans. Small and midsize companies often do not. Look at the fees you are charged for your 401k and compare that with what a fund company might charge. For any retirement savings, a good rule of thumb is to invest 10 percent of your salary if you start saving in your 30s, 20 percent if you are 45 and just starting to save and 30 percent of your salary if you are 50. Remember that just because your employer stopped matching your contributions doesn’t mean he won’t start the program again later.